McDonald's to bring fresh beef to most U.S. locations

The fast-food giant said today that it will make Quarter Pounder burgers with fresh patties rather than frozen ones by mid-2018 at most U.S. restaurants, its latest move to win back customers and turn around its sluggish U.S. business.

It's one of more than a dozen initiatives unveiled over the last two years by the Oak Brook-based chain to improve the quality of its food and its perception in the marketplace in an effort to stem an outflow of customers to fast-casual chains like Five Guys and Smashburger, as well as its fast-food rivals. McDonald's said earlier this month it has lost 500 million customer transactions in the U.S. since 2012, mainly to its fast-food competitors, such as Wendy's, which has used its never-frozen patties as a primary point of differentiation in television and digital ads for several months.

McDonald's, which has ranked near the bottom of several surveys measuring burger quality within the past several years, also will grill the patties to order, with the aim of delivering a burger that comes out hotter, fresher and better-tasting.

The company always has used 100-percent beef patties, but they arrived pre-formed and frozen. Restaurants would griddle in advance and transfer them to a heated holding bin until a customer placed an order.

Burgers made with the fresh patties include the Quarter Pounder, Quarter Pounder with Cheese, Double Quarter Pounder with Cheese, the Quarter Pounder with Cheese Deluxe and the chain's newish line of Signature Crafted Recipe burgers, which are not yet available in all restaurants. Other McDonald's burgers, such as the Big Mac and its regular hamburger, will still be shipped frozen.

The company said it will approach the roll-out of fresh beef the same way it handled the launch of all-day breakfast. McDonald's at first launched a limited menu of breakfast items available around the clock, then added items as time went on.

While the move inevitably lead to higher costs, McDonald's "probably looked more so at the cost of not doing it, competitively," said Erik Thoresen, a principal at market research firm Technomic. "When you're in a category where most of the relatively new entrants are focused on fresh, it makes sense to understand whether switching to fresh beef is feasible."

Thoreson said rolling out such changes to 14,000 or so U.S. restaurants will present operational challenges for McDonald's. But, he noted, "McDonald's is proving that they're experts at the process of testing the feasibility of something before rolling it out, which they proved with all-day breakfast."

The company began testing Quarter Pounders made with fresh beef in Dallas last year, then expanded the test into some 400 restaurants in northern Texas and the Tulsa, Okla., market. Franchisee Joe Jasper, who owns and operates McDonald's restaurants in the Dallas-Fort Worth area, said in a statement he "received overwhelmingly positive feedback from customers and employees" during the test, which was driven by franchisees.

McDonald's started off serving fresh beef but switched to frozen patties in 1973. After a wave of so-called "better burger" competitors hit the market in the 2000s, the company considered moving back to fresh beef, but executives resisted, saying it would be too complicated to manage a supply chain with fresh beef.

On top of that, many argued, the payback would be limited: The sandwiches may not taste noticeably better than frozen beef patties, and there were questions as to whether its customers, many of whom choose McDonald's primarily because of value, cared.

Serving fresh beef comes with complications, including a logistics system built around storing and transporting frozen patties. It also may present challenges for McDonald's beef vendors, which for years have used processes designed to deliver frozen beef.

There are other drawbacks, too. Freezing patties smooths the supply-and-demand cycle by making more product available when it's needed; fresh beef has a much shorter shelf life and must be discarded if it's not used within a set period of time. That could increase food expenses for McDonald's restaurants at a time when many operators already are absorbing higher labor costs. Combined, it may lead to a higher-priced burger, though the company had no immediate plans to raise burger prices.

Then, of course, are nagging problems of food safety. A fresh product is much more likely to spoil or harbor unwanted bacteria or pathogens than a frozen product.

Wendy's has offered fresh, never-frozen beef since it opened in 1969. In an interview with analysts, the chain's executives said introducing raw beef into restaurants is a "huge" supply chain and operational change that presents challenges on the food-safety standpoint, according to a March 23 research note.

Despite those challenges, however, Wendy's said "fresh is on trend" and that fresh-beef burgers retain moisture better than frozen counterparts, according to the note.

In the end, McDonald's came to the same conclusion, apparently, betting that if Wendy's can do it, they can too.

McDonald's shares were trading up a half a percent this morning at $129.47.